The two-pot system arose from a simple concept that has huge political appeal, to allow financially distressed fund members to withdraw a limited amount of money from their pension savings. Up to now, financially distressed members of funds have had to leave their employment to access their pension and provident fund savings. Actuarial studies have also indicated that the retirement component, which must be annuitised only on retirement, will overall result in members having greater amounts of retirement savings, even if they decide to withdraw the savings component in full every tax year.
Godongwana also confirmed that much work was still needed on several aspects of the RLAB which are complicated.
One of the complexities of the two-pot system, is how it will be implemented for defined benefit (DB) funds the largest of which is the Government Employees Pension Fund (GEPF) which has more than 1.2-million members. A major difference between defined contribution (DC) funds and DB funds, is that in DC funds, it is possible to calculate the value of the contributions that have already been made by the member, but in DB funds, the final pension fund benefit will be based on the final salary of the member plus the number of years’ service.
The RLAB has provided for the savings and retirement components of DB funds to be determined with reference to a member’s pensionable service on or after March 1 2025, or a reasonable method of allocation as approved by the FSCA. The implementation of the two-pot system for DB funds must be carefully undertaken to ensure fairness to all members of each DB fund. Any necessary engagements with the FSCA by DB fund administrators will also require additional lead time from the promulgation date to implementation date.
The Association for Savings and Investment South Africa (ASISA’s) position is that the industry needs at a minimum, a 12 to 18-month lead time from promulgation date to implementation date. The minister’s proposal of September 2024 recognises members’ urgent need for funds, and the practical challenges of implementing the system after promulgation.
* Joon Chong is partner & Nicolette van Vuuren senior associate from Webber Wentzel
JOON CHONG & NICOLETTE VAN VUUREN | Two-pot retirement system effective date — September 1 2024
Discussions with the Treasury, Sars, FSCA, GEPF and the Government Pensions Administration Agency indicate that the September 1 date would be achievable
Image: 123RF
The minister of finance, Enoch Godongwana, has proposed that parliament extend the date of implementation of the two-pot system contained in the Revenue Laws Amendment Bill (the RLAB) from March 1 2024 to September 1 2024.
In his letter to the chairperson of the standing committee on finance, minister Godongwana raised the following concerns with the March 1 2024 implementation date:
Enoch Godongwana
The two-pot system arose from a simple concept that has huge political appeal, to allow financially distressed fund members to withdraw a limited amount of money from their pension savings. Up to now, financially distressed members of funds have had to leave their employment to access their pension and provident fund savings. Actuarial studies have also indicated that the retirement component, which must be annuitised only on retirement, will overall result in members having greater amounts of retirement savings, even if they decide to withdraw the savings component in full every tax year.
Godongwana also confirmed that much work was still needed on several aspects of the RLAB which are complicated.
One of the complexities of the two-pot system, is how it will be implemented for defined benefit (DB) funds the largest of which is the Government Employees Pension Fund (GEPF) which has more than 1.2-million members. A major difference between defined contribution (DC) funds and DB funds, is that in DC funds, it is possible to calculate the value of the contributions that have already been made by the member, but in DB funds, the final pension fund benefit will be based on the final salary of the member plus the number of years’ service.
The RLAB has provided for the savings and retirement components of DB funds to be determined with reference to a member’s pensionable service on or after March 1 2025, or a reasonable method of allocation as approved by the FSCA. The implementation of the two-pot system for DB funds must be carefully undertaken to ensure fairness to all members of each DB fund. Any necessary engagements with the FSCA by DB fund administrators will also require additional lead time from the promulgation date to implementation date.
The Association for Savings and Investment South Africa (ASISA’s) position is that the industry needs at a minimum, a 12 to 18-month lead time from promulgation date to implementation date. The minister’s proposal of September 2024 recognises members’ urgent need for funds, and the practical challenges of implementing the system after promulgation.
* Joon Chong is partner & Nicolette van Vuuren senior associate from Webber Wentzel
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